TAX  REVISION 


REPORT  OF  COMMITTEE 
ON  TAXATION 


TEXAS  COMMERCIAL  SECRETARIES 

AND 

BUSINESS  MEN’S  ASS  N 


FORT  WORTH,  TEXAS 

1910 


The  Committee  on  Taxation  appointed  by  the  Texas 
Commercial  Secretaries’  Association  has  completed  its 
labors  and  makes  its  final  report  herein.  .The  committee 
was  instructed  to  draft  a revision  of  our  tax  laws  and 
submit  it  for  consideration,  but  the  committee  deemed  it 
advisable  to  make  a report  of  its  investigation  of  the 
present  tax  system  and  has  recommended  that  a non- 
political tax  commission  be  appointed  to  make  needed 
revision  on  the  basis  of  taxing  every  dollar  and  taxing 
it  alike  whether  that  dollar  be  private,  corporate,  home  or 
foreign.  The  report  of  the  committee  follows: 

‘‘Your  committee  has  undertaken  to  investigate  the 
operation  of  our  present  tax  system  as  a preliminary  step 
in  the  revision  of  our  tax  laws  and  to  determine  as  far 
as  possible  the  inequalities  to  which  the  system  subjects 
the  different  classes  of  property.  In  order  to  determine 
equality  in  taxation  there  must  be  a standard  of  measure. 
An  investment  of  an  equal  sum  of  money  in  different 
lines  of  industry  and  a comparison  of  the  taxes  paid  on 
each  investment  is  regarded  by  the  committee  as  the  true 
test  of  equality.  Our  revenue  system  recognizes  occupa- 
tion, franchise,  intangible  and  tangible  values,  but  these 
are  sub-divisions  of  the  market  value,  and  when  property 
is  purchased  on  the  open  market,  the  price  paid  represents 
the  total  value  of  the  property,  and  we  consider  that  the 
basis  of  comparison  above  outlined  is  therefore  right  and 
just  to  each  and  every  class  of  property. 

The  tangible  value  of  property  is  the  market  value. 
The  intangible  value  is  applied  to  railroads  only  and  is 
merely  a separation  of  the  market  value  between  the 
physical  or  tangible  value  of  the  property  and  the  intan- 
gible value.  All  property  except  legal  tender  has  intan- 
gible values  and  these  values  are  included  in  the  market 
value  of  the  property.  The  only  hardship  it  works  on 
the  railroads  is  in  forcing  them  to  render  intangible  prop- 
erty at  its  full  value  while  other  property  is  assessed  at 


an  average  of  46  per  cent  of  its  true  value.  The  franchise 
tax  is  a tax  levied  against  all  corporations  for  corporate 
privileges,  the  State  granting  individuals  who  take  stock 
in  corporate  property  relief  from  any  obligation  beyond 
the  amount  of  the  stock.  It  adds  no  value  to  property.  A 
factory  for  example  owned  by  a private  individual  is  worth 
no  more  after  it  is  incorporated  than  it  was  under  private 
ownership  and  the  State  is  therefore  taxing  a thing  of 
no  commercial  value.  The  occupation  or  gross  tax  receipts 
tax  is  levied  for  the  privilege  of  occupying  or  doing  busi- 
ness in  the  State.  Applied  to  a farm  it  would  mean 
that  the  man  who  owned  a farm  could  not  cultivate  it 
without  giving  the  State  a portion  of  the  gross 
earnings  for  the  privilege  of  occupancy.  The  farmers 
however  are  exempt  from  occupation  tax  by  constitutional 
amendment,  and  this  tax  is  applied  in  the  main  to  corpora- 
tions. The  man  who  pays  tax  cares  very  little  for  names. 
It  is  the  amount  of  the  tax  receipt  that  interests  him 
and  if  tax  experts  of  the  country  would  devote  their 
energies  to  adding  commercial  value  to  property  instead 
of  discovering  tax  values  it  would  make  our  country  far 
more  prosperous. 

We  find  gross  inequalities  both  in  the  law  and  in  the 
administration  of  the  law.  These  inequalities  exist  be- 
tween the  different  classes  of  property  and  between  dif- 
ferent properties  within  each  class,  as  shown  in  the  follow- 
ing statement.  The  figures  used  in  this  report  are  taken 
from  the  printed  official  reports  of  the  various  depart- 
ments of  State  of  date  January  1,  1909,  and  the  results 
can  be  easily  verified  by  anyone  who  cares  to  make  the 
calculations. 

For  convenience  in  discussion,  we  will  divide  property 
into  two  classes,  viz.,  corporate  and  private.  In  compar- 
ing these  properties  and  the  taxes  paid  by  each  class,  it 
should  be  borne  in  mind  that  Texas  has  reached  a period 
in  its  growth  where  it  must  develop  through  corporate 
investments.  We  cannot  build  railroads,  open  mines, 


build  factories  and  large  industrial  enterprises  necessary 
to  our  material  progress  without  first  forming  a corpora- 
tion. 


Figure  1 illustrates  the  proportion  of  corporate  to 
private  property  in  the  State.  The  upper  portion  of  the 
circle  shows  16  per  cent  corporate  and  the  lower  portion 
of  the  circle  shows  84  per  cent  private.  Figure  2 gives 
the  proportion  of  State  tax,  general  revenue,  paid  by 
corporate  and  private  property. 


Fig.  2 


The  corporate  property,  which  constitutes  16  per  cent 
of  property  values  pays  55  per  cent  of  the  State  tax,  gen- 
eral revenue,  and  the  private  property,  which  constitutes 
84  per  cent  of  the  property  values,  pays  45  per  cent  of  the 
tax.  These  inequalities  in  some  instances  extend  to  the 
county  assessment  as  well  as  State,  and  especially  is  this 
true  with  railroad  property.  There  is  also  a vast  differ- 
ence in  the  tax  paid  between  the  different  classes  of  prop- 
erty and  between  the  same  classes  of  property  in  different 
counties.  The  variation  in  the  per  cent  of  true  value  of 
property  rendered  for  assessment  probably  ranges  from 
25  per  cent  to  100  per  cent.  The  average  per  cent  of 
true  value  of  property  rendered  is  as  near  as  we  can 
determine  46  per  cent. 

Figure  No.  3 illustrates  the  inequalities  in  taxation 
between  different  classes  of  property. 


An  investment  of  $10,000  is  made  in  property  at  the 
market  price  and  the  figures  shown  in  the  circle  repre- 
sent the  total  amount  of  tax  paid  on  each  investment 

Inequalities  in  taxation  must  be  due  to  one  or  two 
causes;  the  law  or  the  administration  of  the  law.  Figure 


No.  3 gives  the  law  as  administered  and  accurately  pho- 
tographs our  revenue  system  in  operation.  Figure  No.  4 
gives  the  same  information  for  the  law  as  written. 


Fig.  4 


The  enforcement  of  all  our  statutes  would  give  the 
results  shown  in  the  above  circle  in  so  far  as  it  would 
affect  the  different  classes  of  property.  The  difference 
between  Figure  No.  3 and  Figure  No.  4 is  due  to  the 
fact  that  the  railroads  pay  taxes  on  the  full  value  of  their 
intangible  property,  while  other  classes  of  property  render 
at  an  average  of  approximately  46  per  cent  of  true  value, 
and  if  the  law  were  enforced  and  all  property  was  ren- 
dered at  full  value  it  would  lower  the  tax  rate  without 
increasing  the  rendition  of  railroad  property,  as  the  rail- 
roads already  render  intangible  property  at  full  value. 
There  are  inequalities  in  both  the  law  and  the  adminis- 
tration of  the  law.  The  inequalities  in  the  lav/  lie  in  the 
various  enactments  taxing  different  classes  of  properties; 
and  the  inequalities  in  administration  arise  from  the  de- 
fective application  of  the  full  rendition  law. 


The  State  has  placed  three  valuations  upon  railroad 
property,  one  by  the  Railroad  Commission  for  the  pur- 
poses of  issuing  bonds  and  making  rates;  one  by  the  Tax 
Commission  for  purposes  of  taxation,  and  another  by  the 
tax  assessor,  as  shown  in  Figure  No.  5. 


Fig.  5 

We  do  not  know  which  of  these  three  valuations  is 
correct,  but  it  is  self-evident  that  two  of  them  are  wrong. 
A merchant  who  would  have  three  yard-sticks  in  the  reg- 
ular course  of  his  business  would  have  trouble  with  the 
grand  jury,  and  the  State  should  certainly  practice  the 
same  standard  of  honesty  that  it  requires  of  its  citizens. 

The  difference  between  the  Tax  Commission  and  the 
tax  assessors’  figures  lies  in  the  valuation  of  tangible  prop- 
erty. The  Tax  Commission  finds  the  true  value  of  intan- 
ble  property  of  railroads  within  the  various  counties  and 
furnishes  these  figures  to  the  tax  assessors,  who  are  com- 
pelled by  law  to  use  them;  the  tax  assessors  place  their 
own  valuation  upon  tangible  property  of  railroads  at 
$79,000,000  less  than  the  Tax  Commission.  This  inequality 
in  railroad  assessment  extends  throughout  the  counties 
and  aggregates  $750,000  per  annum  more  than  the  rail- 
roads would  pay  if  their  property  were  assessed  at  the 
same  per  cent  of  its  true  value  as  all  other  property. 


We  need  railroads  to  develop  our  agricultural  lands. 
We  have  30,000,000  acres  of  land  now  under  cultivation 
and  137,865,000  uncultivated,  as  shown  in  Figure  No.  6. 


The  uncultivated  portion  needs  railroads  to  develop 
it  and  bring  its  products  in  touch  with  the  market.  Large 
quantities  of  mineral  wealth  lie  beneath  its  surface.  It 
takes  corporate  capital  to  build  railroads  and  open  mines, 
and  our  revenue  system  should  harmonize  with  the  State's 
needs. 

The  total  value  of  raw  material  for  the  factory  pro- 
duced on  the  Texas  farms  per  annum  amounts  to  $527,- 


905,000,  and  of  the  amount  $75,600,000  is  manufactured  in 
Texas  and  $452,305,000  is  shipped  to  other  States  and 
countries,  as  shown  in  Figure  No.  7. 

It  will  require  a billion  dollars  of  capital  to  manu- 
facture the  raw  material  shipped  out  of  the  State.  This 
capital  must  be  corporate  and  our  revenue  system  should 
encourage  factory  investments. 

Our  revenue  system  is  rigid  and  stupid,  and  is  not 
sufficiently  elastic  to  meet  changing  conditions,  and  has 
not  inherent  provisions  which  unfold  to  meet  new  condi- 
tions. If  we  are  to  approximate  equality  in  our  revenue 
system,  drastic  revision  both  in  our  laws  and  in  our  en- 
forcement is  absolutely  necessary  and  we  recommend  the 
appointment  of  a non-political  Tax  Commission  to  sub- 
mit a revision  of  our  tax  system  on  the  basis  of  taxing 
every  dollar  and  taxing  it  equally,  whether  it  be  private, 
corporate,  home  or  foreign. 

Respectfully  submitted, 

B.  B.  CAIN,  Chairman,  Dallas. 

W.  P.  H.  McFADDEN,  Beaumont. 

R.  E.  HUFF,  Wichita  Falls. 

A.  S.  CLEVELAND,  Houston. 

H.  M.  MOORE,  Austin. 

S.  W.  WILLIAMS,  Paris. 

M.  LASKER,  Galveston. 

CLARENCE  OUSLEY,  Fort  Worth. 


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